Glossary · Investing and personal finance
Drawdown
A drawdown is how far an investment has fallen from its highest point. The maximum drawdown is the worst such fall over a period.
Also called: maximum drawdown, max drawdown, peak-to-trough decline
Sep 1929 to Jun 1932, dividends included. Back to the old high in Jan 1945.
December 4, 2013 to January 14, 2015. Now −41% from its high of October 6, 2025.
Oct 2026: a record high (monthly averages, dividends included).
In plain words
Your savings reach $10,000, then the market drops and they are worth $7,000. You are in a drawdown of 30%: that is how far you are below your previous high. It lasts until the account climbs back above $10,000.
The maximum drawdown is the deepest fall from a peak to a later low over a period. It answers the question investors actually feel: how bad did it get? Averages and yearly returns hide it, because the worst fall can stretch over several years.
For US stocks the record, with dividends, is −82%, from Sep 1929 to Jun 1932. Bitcoin’s deepest fall since 2013 was −85%.
Example
Why falls hurt more than gains help
- Fall 10%: you need a gain of 11% to get back.
- Fall 20%: you need 25%.
- Fall 50%: you need 100%. $10,000 → $5,000 has to double to reach $10,000 again.
- Fall 80%: you need 400%.
The gain needed to recover is fall ÷ (1 − fall). Deep drawdowns take a long time to repair.
One level deeper
A drawdown has three parts: its depth (how far), its length (from the peak to the bottom) and the recovery (from the bottom back to the old high). After the 1929 peak, US stocks with dividends needed 15 years to get back to the old high, in Jan 1945. The fall of 2007–09 was −49%, and that of early 2020 −19%, on monthly averages, which smooth out the worst days: on daily closes the 2020 fall was about a third.
Measured the same way, US stocks have fallen 20% or more from a high 14 times since 1871. Such a fall is usually called a bear market.
Drawdown is the number that tells you whether you could have stayed invested. A portfolio with a lower return but a much smaller maximum drawdown can be the better choice for someone who would sell in a panic. That is why diversification and asset allocation are judged by their drawdowns as well as their returns.
How far US stocks were below their previous high, since 1871
Zero means a new record; every dip below it is a drawdown. The deepest followed the 1929 crash; other big ones came in the 1970s, 2000–02 and 2008–09.
The numbers behind the chart
| Date | Below the previous high |
|---|---|
| Jan 1871 | 0.0% |
| Dec 1880 | 0.0% |
| Dec 1890 | −16.1% |
| Dec 1900 | 0.0% |
| Dec 1910 | −7.7% |
| Dec 1920 | −22.5% |
| Dec 1930 | −47.5% |
| Dec 1940 | −37.4% |
| Dec 1950 | 0.0% |
| Dec 1960 | −0.4% |
| Dec 1970 | −9.3% |
| Dec 1980 | −1.2% |
| Dec 1990 | −7.3% |
| Dec 2000 | −10.1% |
| Dec 2010 | −13.2% |
| Dec 2020 | 0.0% |
| Dec 2022 | −15.0% |
| Dec 2023 | 0.0% |
| Dec 2024 | 0.0% |
| Dec 2025 | 0.0% |
| Oct 2026 | 0.0% |
Why it matters
It measures the pain, not just the average: the fall you would have had to sit through.
Recovery math is brutal: a 50% loss needs a 100% gain, so avoiding the deepest falls matters a lot.
It is how funds and strategies are compared: a high return with an 80% drawdown is a very different ride from the same return with a 20% one.
A common mistake
Myth: A 50% loss followed by a 50% gain gets you back to even.
In fact: It leaves you down 25%: $100 → $50 → $75. To recover from a 50% fall you need a 100% gain.
Questions people ask
How do you calculate maximum drawdown?
Track the highest value so far; at each point, divide the current value by that high and subtract 1. The most negative result over the period is the maximum drawdown. From a $12,000 peak to a $9,000 low: 9,000 ÷ 12,000 − 1 = −25%.
How deep do stock market drawdowns get?
On monthly averages with dividends, US stocks fell 20% or more from a high 14 times since 1871, and the deepest fall was −82%. Single stocks and young markets such as crypto can fall much further: bitcoin’s deepest fall since 2013 was −85%.
How long does it take to recover from a drawdown?
It varies enormously. After the 1929 crash, US stocks with dividends needed 15 years. After the fall of early 2020, only a few months.
Read more on BigCapital
About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- Bitcoin price: Coin Metrics Community Network Data, metric PriceUSD. License: CC BY-NC 4.0.
- S&P Composite price and total return since 1871, and US consumer prices: Robert J. Shiller, Online Data (shillerdata.com); total return with dividends reinvested monthly, calculated by BigCapital.
- This page explains a term. It is not investment advice.